Single Lets Vs. Multi Lets (HMOs) - Which Makes the Better Investment?
So, there's a lot of hype around multi-lets or houses in multiple occupation at the moment and for good reason. But which is the best property investment strategy, single lets or multi-lets (HMOs)? Well, as always, the best strategy will depend on your own criteria and aims as they both have their advantages and disadvantages.
Let me explain the difference between them...
A single Let doesn't necessarily mean just one person, but one 'tenancy' where you will typically have an individual, couple or family.
A multi-let, on the other hand, will involve 'multiple' tenants sharing one property and they will typically rent just one bedroom and share the communal lounge, kitchen and bathroom.
Buy-to-Let (Single-Lets)
A single let is great for those wanting a - generally - low maintenance, less hassle and simpler investment. There is generally less time and work involved in sourcing and managing the tenant, but very often it will typically have a lower return and yield.
I would usually recommend a two+ bedroom property for a single let, as a one-bed can be harder to re-sell, so you could limit your exit strategy.
Also from a rental perspective, you may find properties with gardens will have tenants staying for longer as they are able to 'grow' into the property and won't feel stifled like they might in a terrace with a small rear yard.
The downside is the extra attention from possible first-time buyers for these garden properties, may bring the purchase price up in a buoyant market, which is why the 'typical' landlord often favours the terrace style house (with no garden) as the return on investment can be higher when you look at the hard figures.
Multi-Lets (HMOs)
A multi-let, however, is often looked on as being too much hassle. It's true that there are more hoops to jump through to get the property up to standard with the council for instance, but the returns are often well worth the extra effort.
We have a couple of multi-let properties which we own ourselves and also lease from other landlords. These bring in great returns, and in a market where house prices are unpredictable and capital growth is less than certain, cash flow remains key.
A Casestudy
Here is a quick example of a property, on the market, in Chester:
http://www.rightmove.co.uk/property-for-sale/property-33189865.html
Now at this stage I haven't done any research on the specific property or viewed it at all, it was just a 2-minute search on Rightmove. Also, the costs of maintaining the property and other running costs haven't been shown, it is just meant as a quick comparison.
Consider this Property as a Single-Let
Let's say the purchase price was the asking price
(Note: NEVER EVER EVER pay the full price without trying to negotiate first, but that's a matter for another topic, we're just using it here for ease of figures)
So the purchase is £145k and the market rent for a single let could be around £650-700pcm.
This would give you a potential return on investment of 5.3% - 5.8%
Consider this Property as a Multi-Let
This property has the potential for it to easily be 4 lettable bedrooms and possibly even 5 with minimal effort.
We could probably achieve a rental of around £80pw per bedroom for this area based on what we achieve for our other properties around Chester.
Now, even if we said we could only get 4 lettable bedrooms, this would be around £1,386 per month for the property.
Now we would include bills for the tenants with this, but on a 4 bedroom property we would set a budget for bills of between £300-350pcm, so even when paying for bills there is still a potential monthly rent of £1,000+ for this property
This would give you a potential return on investment of 8.3%+, Or even higher if you achieved 5 bedrooms from it.
So, your returns can rocket, even on the same property when you just tweak your strategy.
Now there are a lot of things to consider for both multi-lets and single lets, more than I could ever cover in this blog, so for specific info please give me a call. Also, the yields shown are easily beatable.
We would usually look for around 8% yield for Single lets and 12%+ yield for multi-lets depending on the areas.